The head of a life insurer says she is not "wedded" to the commission model but is also not convinced that cutting commissions will stamp out bad behaviour in the industry — a view at odds with that of regulators.
Naomi Ballantyne, chief executive of Partners Life, said the insurer was working on its response to the conduct and culture report on the life insurance industry released by the Financial Markets Authority and the Reserve Bank in late January.
Insurers have until the end of June to respond to individual recommendations made by the regulators.
The report painted the industry in a poor light and found life insurers had been complacent over conduct risk, too slow to make changes after previous FMA reviews and lacking focus on good customer outcomes.
Commissions came under particular focus, with a Reserve Bank table showing the commissions paid by Kiwi life insurance companies to advisers were the highest in the developed world, making up 20.4 per cent of gross premium revenue.
Regulators have recommended insurers review their commission structures and volume bonuses for financial advisers to ensure they are "incentivising intermediaries to deliver good customer outcomes".
"In our view, high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes."
But Ballantyne has questioned the drive to cut commissions.
"I don't believe that just reducing upfront commissions and service commissions will fix the problems that have been identified.
"How do we know other models don't have other problems?"
She said her company was looking into what remuneration an adviser required to remain in business. "We want advisers to stay in business."
Advisers are vital to the Partners Life model as it does not sell direct to the public. Ballantyne said it was looking closely at Australia, where commissions have been capped, and other places abroad as well as digging into New Zealand adviser businesses.
She said paying a commission was being seen as an issue because it was a tool that could change the behaviour of advisers but Ballantyne believed new legislation — the Financial Services Legislation Amendment Bill, should be given a chance first.
The legislation would make it compulsory for all advisers to disclose commissions — at the moment only authorised financial advisers have to.
"I think it is a good piece of legislation. I would like to see it put in place and the outcomes monitored while we all get under the hood because it is complex, not simple."
Partners Life is starting a multimillion-dollar direct to the public advertising campaign which is the first in its seven-year history.
Ballantyne said the campaign was aimed at educating the public on the need for life insurance and growing the market as a whole rather than driving business to her company.
Industry figures show the market has stagnated since 2012.
Ballantyne said the campaign, 15 months in the works, wasn't designed as a counter measure to the recent negative publicity about the industry.
"This is our timing."
But she said the company had discussed whether the timing was a good idea. "We had a big internal debate. Are we putting our head and shoulders above the parapet?"
But she said because the campaign was not selling insurance the company felt it was okay. "Because it is not direct marketing ... it fits in with what regulators want to see — more education and awareness."
Ballantyne said there was a public perception that ACC or the Government would be there at times of need.
"When you have got people thinking that and no one wants to pay for insurance — then it's an excuse not to think about it."
She said advisers also tended to target people aged 35 to 45 who owned their own home or business but didn't target the wider market.
Banks had picked up some of those overlooked people, but "we need both advisers to change their view of who are good customers and get customers to change", she said.
"This is not going to happen in the short-term. But we are starting the conversation."
• Commissions paid by NZ life insurance companies to advisers highest in developed world
• Commissions make up 20.4 per cent of gross premium revenue
• Regulators recommend insurers review commission structures and volume bonuses for advisers
• They say high upfront commissions are not acceptable because they drive poor conduct